Dear Mr. Berko:
I recently spent $390 at The Container Store in Tampa, Florida. They have some great kitchen and bath shelving. It’s very expensive but well-made and practical. The store was packed, and one of the employees, who I thought was the manager, told me the company is public. I’d like to buy 400 shares, so what do you think of this company?
— WO, Port Charlotte, Fla.
Dear WO:
The Container Store, a fascinating niche concept, opened its first store in Dallas in 1978. Then, 61 stores and 25 years later, on Nov. 1, 2013, The Container Store (TCS-$19.52) came public at $18. The stock was oversubscribed on the first day, and “stock flippers,” intoxicated with profits, applauded as the shares zoomed to $36. Stupidity! TCS generated $760 million in revenues from 61 units (sales of $13 million per unit) and 2,600 employees while posting 13 consecutive monthly sales increases. And in December 2013, during the holiday season, when management was in an expansive mood, TCS claimed it could expand to 300 stores, and the shares leapt insanely to $47. TCS was going to get big, bigger and biggerer! But weeks later, after romancing investors with grand expectations, this retailer of storage bins, shelving and stackable boxes ignominiously lowered its forecasts, and TCS took the pipe and crashed to $16.50. Today, without a centime of earnings, TCS is priced higher than it should be.
I believe that the retail sector has good potential for investors with a three- to five-year time horizon. But I’m not enthusiastic about a company selling a superfluity of unnecessary gimcracks, fandangles and dojiggers such as boxes, hangers, component shelving, hooks, food containers, clothing drawers, gift wrapping flumadiddles, trash cans, storage containers and the like that are almost exclusively made from plastic. It seems — after a surge of business fueled by new store openings, plus a rush from an enthusiastic response to TCS’ publicity after its initial public offering — that the consumer’s interest has cooled. Now with 68 locations and its IPO out of the way, TCS must address the competition from big-box stores such as Bed Bath & Beyond, The Home Store, Crate & Barrel, Target, Wal-Mart, Staples and even Amazon.com. I doubt the company can do it. To compete with these retailers, TCS will have to cut prices, which is anathema to profits. Today’s consumers are becoming extra-choosy about their purchases, and retailing has become more of a promotional event than it has been in the past. Buyers are responding to price promotions and seem reluctant to purchase items that haven’t been marked down.
I won’t recommend TCS, because I don’t care for retail stocks that don’t generate repeat sales because their products aren’t consumable, don’t show wear, don’t go out of style and don’t erode with use. Companies that produce consumables — such as toothpaste, food, alcohol, candy, medicine, gasoline, office supplies, electronics and toys — are better investments. How does one make a better breadbox? For years, I’ve had two clear Rubbermaid containers in my office, containing extra office supplies and accouterments, and a tall, multi-drawer plastic upright container in my garage, containing odds, ends and other incunabula. These containers are a dozen years old, and I’ve no plans to visit a Container Store to replace them. TCS is a fun place to visit, and it’s amusing to compare some of the ridiculous prices with comparable products I can buy at Target for 70 percent less. Earnings are the only reason to buy TCS, and I don’t see enough to buy the stock.
Despite recent discounts, traffic is slowing at TCS stores, but with targeted advertising, new store openings and loyalty programs, revenues for 2014 will be up by about 5 percent, to about $805 million. Unfortunately, the surge of business from new stores hasn’t been enough to offset declining sales at existing locations. And there are many reasons for this trend to continue. Revenues at current locations will begin to diminish because there’s not enough demand for this product; consumers are making less than they were seven years ago, and their installment debts are at extreme levels. Their wallets are nearly empty. Middle America is shopped out.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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